The food-tech industry, which went through an upheaval in 2016 with TinyOwl, Spoonjoy and Dazo, among others, shutting shop while players such as Zomato and Foodpanda reducing workforce, continues to struggle to grab a share of consumers’ wallets. Between January and September this year, Zomato witnessed a 4% increase in average order value (AOV) at Rs 333, while its arch-rival Swiggy recorded just a 0.35% increase in AOV at Rs 277, data from a research by KalaGato Pte show. As per the data, in the same nine-month period, Sequoia Capital-backed Faasos witnessed a 2.2% increase in AOV, which stood at Rs 56. Naspers-backed Foodpanda reported a 0.7% increase in average order value at Rs 241. Almost each of these firms has a different business model. While Faasos runs its own central kitchen, under the cloud kitchen model, where it sells a range of food items, including wraps, biryani, desserts, etc, Swiggy runs its own logistics, with its deliverymen collecting orders from its network of restaurants to deliver to it to end-consumers. Zomato and Foodpanda generate order volume through advertising on their respective sites. However, the two companies outsource delivery to third-party vendors.
It should be noted that in September this year, equity research firm Nomura pegged Zomato’s valuation at $1.4 billion from $1 billion in its report. The increase in valuation is based on the last fund exercise taken up by the company in September 2015. Zomato had raised $60 million from Singapore’s Temasek Holdings and existing investor Vy Capital. In its report, Nomura said, “Zomato is a globally scalable business, which utilises the network effects of its restaurant discovery platform, enabling monetisation in food ordering at low customer acquisition costs.” The equity research firm in the report also said it estimates Zomato’s revenues could grow 6.5 times to more than $300 million over FY17-22. As per the report, the growth in revenues will be driven 4.5x in the company’s advertising revenue, which is expected to touch $38 million in FY17, besides a 15 times spurt in revenue of its food ordering business to $9 million in the same period.
In April this year, Zomato Media — the food ordering arm of Zomato, reported an 80% jump in revenue to $49 million, or Rs 11.38 crore, for the year ended March 31, 2017, according to a blog post by the company. Cash-burn, or operating expenses, of the company fell 81% to $12 million in FY17 from $64 million a year ago. However, in March this year, Zomato’s plans to raise fresh funds hit a dead end after the company failed to find investors willing to infuse funds at a valuation of $1 billion. In November 2016, the company had appointed Morgan Stanley to initiate the process of fund-raising. Meanwhile, in its effort to combat Zomato, Swiggy raised $80 million in a ‘Series E’ funding round, led by South African media company Naspers.
Swiggy posted a near 65-fold increase in losses to Rs 137.18 crore for the period ended March 2016 from Rs 2.12 crore a year earlier, as per filings with the Registrar of Companies (RoC). The company’s revenue rose to Rs 23.59 crore in FY16 from Rs 11.59 lakh in FY15. Even as Zomato and Swiggy battle it out against each other, according to several media reports, they have initiated talks for merger as losses grow.